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Notice of Listing of Products by Icap Sef (Us) Llc for Trading by Certification 1

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NOTICE OF LISTING OF PRODUCTS BY ICAP SEF (US) LLC FOR TRADING BY CERTIFICATION 1. This submission is made pursuant to CFTC Reg. 40.2 by ICAP SEF (US) LLC (the “SEF”). 2. The products certified by this submission are the following: Fixed for Floating Interest Rate Swaps in CNY (the “Contract”). Renminbi (“RMB”) is the official currency of the Peoples Republic of China (“PRC”) and trades under the currency symbol CNY when traded in the PRC and trades under the currency symbol CNH when traded in off-shore markets. 3. Attached as Attachment A is a copy of the Contract’s rules. The SEF is listing the Contracts by virtue of updating the terms and conditions of the Fixed for Floating Interest Rate Swaps submitted to the Commission for self-certification pursuant to Commission Regulation 40.2 on September 29, 2013. A copy of the Contract’s rules marked to show changes from the version previously submitted is attached as Attachment B. 4. The SEF intends to make this submission of the certification of the Contract effective on the day following submission pursuant to CFTC Reg. 40.2(a)(2). 5. Attached as Attachment C is a certification from the SEF that the Contract complies with the Commodity Exchange Act and CFTC Regulations, and that the SEF has posted a notice of pending product certification and a copy of this submission on its website concurrent with the filing of this submission with the Commission. 6. As required by Commission Regulation 40.2(a), the following concise explanation and analysis demonstrates that the Contract complies with the core principles of the Commodity Exchange Act for swap execution facilities, and in particular Core Principle 3, which provides that a swap execution facility shall permit trading only in swaps that are not readily susceptible to manipulation, in accordance with the applicable guidelines in Appendix B to Part 37 and Appendix C to Part 38 of the Commission’s Regulations for contracts settled by cash settlement and options thereon. Appendix B to Part 37—Demonstration of Compliance That a Contract is Not Readily Susceptible to Manipulation Core Principle 3 of Section 5h of the Act—Swaps Not Readily Susceptible to Manipulation. The swap execution facility shall permit trading only in swaps that are not readily susceptible to manipulation. (a) Guidance. (1) In general, a swap contract is an agreement to exchange a series of cash flows over a period of time based on some reference price, which could be a single price, such as an absolute level or a differential, or a price index calculated based on multiple observations. Moreover, such a reference price may be reported by the swap execution facility itself or by an independent third party. When listing a swap for trading, a swap execution facility shall ensure a swap's compliance with Core Principle 3, paying special attention to the reference price used to determine the cash flow exchanges. Specifically, Core Principle 3 requires that the reference price used by a swap not be readily susceptible to manipulation. As a result, when identifying a reference price, a swap execution facility should either: Calculate its own reference price using suitable and well-established acceptable methods or carefully select a reliable third-party index. o The reference price on which the Contract settles is one of the benchmark interest rates set forth in the Contract’s terms and conditions (each, a “Benchmark Rate”). Each new Benchmark Rate that is being added to the Contract’s terms and conditions is calculated and published by a reliable independent third party that is either a government agency or a supervised manager of an inter-bank offered rate, as discussed in more detail below. (2) The importance of the reference price's suitability for a given swap is similar to that of the final settlement price for a cash-settled futures contract. If the final settlement price is manipulated, then the futures contract does not serve its intended price discovery and risk management functions. Similarly, inappropriate reference prices cause the cash flows between the buyer and seller to differ from the proper amounts, thus benefitting one party and disadvantaging the other. Thus, careful consideration should be given to the potential for manipulation or distortion of the reference price. o Please see below. (3) For swaps that are settled by physical delivery or by cash settlement refer to the guidance in appendix C to part 38 of this chapter—Demonstration of Compliance That a Contract is not Readily Susceptible to Manipulation, section b(2) and section c(4), respectively. o Please see below. Appendix C to Part 38—Demonstration of Compliance That a Contract is Not Readily Susceptible to Manipulation (c) Futures Contracts Settled by Cash Settlement. (1) Cash settlement is a method of settling certain futures or option contracts whereby, at contract expiration, the contract is settled by cash payment in lieu of physical delivery of the commodity or instrument underlying the contract. An acceptable specification of the cash settlement price for commodity futures and option contracts would include rules that fully describe the essential economic characteristics of the underlying commodity (e.g., grade, quality, weight, class, growth, issuer, maturity, source, rating, description of the underlying index and index's calculation methodology, etc.), as well as how the final settlement price is calculated. In addition, the rules should clearly specify the trading months and hours of trading, the last trading day, contract size, minimum price change (tick size) and any limitations on price movements (e.g., price limits or trading halts). o Essential Economic Characteristics of the Contract. The terms and conditions of the Contract matches the terms of fixed for floating swaps that are commonly offered in the market and are listed in Attachment A. The Contract is a cash-settled interest rate swap that allows a party to speculate on, or hedge risks associated with, interest rate movements. The Contract is available in multiple currencies and may require the exchange of interest rate payments based on a single currency (“Single Currency Swap”), or may require the parties to exchange principal and interest payments denominated in two different currencies (“Cross Currency Swaps”). In a Single Currency Swap, one party to the Contract (the “Buyer”) makes periodic payments based on a fixed rate that is agreed to at the commencement of the Contract to the other party (the “Seller”). The Seller makes periodic payments at a floating rate based on one of the Benchmark Rates plus a specified percentage (e.g., LIBOR + 2%). In a Cross Currency Swap, periodic interest rate payments are exchanged as described above for a Single Currency Swap. Additionally, the parties exchange the principal on loans denominated in the two different currencies. The Contract requires that periodic payments are exchanged for a specified period based on a notional amount. Settlement of the Contract is based on the selected Benchmark Rate over a term to maturity. In the Cross Currency Swap, the amount of the periodic payments for the two legs are exchanged and converted into a major currency for net settlement after fixing. All of the essential terms of the Contract, other than the payments contingent on the Benchmark Rates, are agreed at the effective date of the Contract (“Effective Date”). This submission is adding CNY to the available currencies for the Contract and the relevant Benchmark Rates and day count conventions associated with CNY, as discussed below, as well as adding Cross Currency Swaps. All the other terms and conditions of the Contract remain as previously certified. o Calculation of Cash Settlement Price. One leg of the Contract will pay a fixed rate established at the Effective Date and which will remain unchanged throughout the life of the Contract. The other leg of the Contract will pay a floating set rate that is also established at the Effective Date (e.g., LIBOR + 2%). For Cross Currency Swaps, the parties will also exchange the principal amounts of the relevant loans each party has separately obtained. The calculation of the relevant Benchmark Rate is governed by a standard set of rules and calculation procedures published by the Benchmark Rate provider, as discussed below. (2) Cash settled contracts may be susceptible to manipulation or price distortion. In evaluating the susceptibility of a cash-settled contract to manipulation, a designated contract market should consider the size and liquidity of the cash market that underlies the listed contract in a manner that follows the determination of deliverable supply as noted above in (b)(1). In particular, situations susceptible to manipulation include those in which the volume of cash market transactions and/or the number of participants contacted in determining the cash-settlement price are very low. Cash-settled contracts may create an incentive to manipulate or artificially influence the data from which the cash-settlement price is derived or to exert undue influence on the cash-settlement price's computation in order to profit on a futures position in that commodity. The utility of a cash-settled contract for risk management and price discovery would be significantly impaired if the cash settlement price is not a reliable or robust indicator of the value of the underlying commodity or instrument. Accordingly, careful consideration should be given to the potential for manipulation or distortion of the cash settlement price, as well as the reliability of that price as an indicator of cash market values. Appropriate consideration also should be given to the commercial acceptability, public availability, and timeliness of the price series that is used to calculate the cash settlement price. Documentation demonstrating that the settlement price index is a reliable indicator of market values and conditions and is commonly used as a reference index by industry/market agents should be provided.
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